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Curbing US climate change in a new era: The role of innovation and legislation

More than any other environmental challenge, reducing greenhouse-gas emissions requires a strategic realignment of the energy system. If things go well, the past two years will be remembered as those when the US began to seriously address climate change.

In September, the US announced it would ratify the Paris Agreement, a global deal signed last December by more than 190 countries that aims to achieve global peaking of greenhouse gas emissions as soon as possible to keep temperature increases “well below 2°C” by the end of the century. This follows the US’ 2015 announced goal to reduce greenhouse-gas (GHG) emissions by 28% from 2005 levels by 2025 prior to the Paris climate-change negotiations.

The country’s Clean Power Plan (CPP), a presidential administration-backed strategy which aims to reduce emissions from the power sector by 32% by 2030 compared to 2005 levels (and a subject of debate in September at the U.S. Court of Appeals for the D.C. Circuit) is a strong first step in that direction. While some prior regulations have had positive effects on carbon emissions, the CPP is America’s first federal policy with the explicit goal of addressing climate change in the power sector, making it a central element of the country’s GHG emissions-reduction goals. The US intention to double public investment in clean energy research and development (R&D), as part of a global R&D effort involving 20 countries, also fortifies the country’s commitment to meeting its goals.

As impressive as these numbers are, they should be viewed in context, beginning with baseline years. Firstly, 2005 is a later baseline year than the European Union’s (1990), thus allowing the US to benchmark reductions against a higher level of emissions. Moreover, the Great Recession that followed the financial crisis of 2008 significantly reduced economic activity, consequently curtailing national emissions. Similarly, while a doubling of clean energy R&D is commendable, it falls short of the tripling recommended by the International Energy Agency to limit the global temperature rise to 2 degrees centigrade.

Most importantly, on a per capita basis, US emissions are remarkably high: per capita American emissions totaled 16.5 tonnes of carbon dioxide equivalent (tCO2e) in 2014. This is more than double the amount emitted by the average Chinese (7.6 tCO2e) or EU (6.7 tCO2e) citizen that same year. Clearly, the US needs to do more to address climate change.

A way forward

The first area to tackle should be win-win situations, namely solutions that are good both for the economy and the environment. This includes improving energy efficiency in buildings and vehicles. Corporate Average Fuel Economy (CAFE) standards, for instance, have helped improve the fuel efficiency of light-duty vehicles by 26% in the past 8 years.

Under the current plan to continue tightening fuel efficiency, CAFE standards could help avoid the emission of up to 500 tCO2e a year by 2035.. By way of scale, this is slightly more than the CPP would achieve by 2030, although emission reductions via CAFE standards are harder to forecast than those under the CPP as they correspond to avoided emissions from a projected emission baseline, whereas those from the CPP correspond to absolute emission reductions. Cheap gasoline, in particular, has eroded some of the impact of CAFE standards as American vehicle miles travelled have increased in 2016, leading to greater vehicle gasoline consumption despite more fuel-efficient cars.#_ftn1" name="_ftnref1" title="">[1] A reasonable gasoline tax would stabilise the price at a higher level.

In parallel, the market for solar and wind has expanded rapidly thanks to innovation, economies of scale, tax credits and renewable portfolio standards. Across many parts of the country, renewables can now deliver profitable, clean energy, even without subsidies. Securely transitioning to a low-carbon future will require significant investments in the electricity transmission system. But most integration challenges can be managed through effective demand-response mechanisms, improved forecasting and, in the longer-term, the deployment of energy storage technologies.

Doug Arent, executive director of the Joint Institute for Strategic Energy Analysis at the National Renewable Energy Laboratory (NREL), for instance, notes that “even 80% renewable penetration is both technically viable to meet today’s reliability requirements, and economically equivalent to other pathways to decarbonise the power sector.” According to NREL’s analysis, this would involve roughly 50% variable sources like solar and wind: as these sources currently provide only about 5% of the US electricity generated, there is plenty of room for growth.

Another clear win will be the reduction of flaring from unconventional production, notably in North Dakota, where more than a third (36%) of natural gas production was flared in 2014. Policy targets have helped bring that share down to 21% in 2015, and more is expected, with the US, Canada and Mexico recently pledging to reduce methane emissions from the oil and gas industry by 40-45% by 2025.#_ftn2" name="_ftnref2" title="">[2] According to the US Environmental Protection Agency, the wider use of existing technologies could help reduce methane emissions from the sector by up to 9 MtCO2e per year in 2025.

A way out

There are also lose-lose situations that the US should phase out immediately– most notably coal. Access to cheap natural gas is playing a key role in curbing coal use: in 2015, for the first time, gas surpassed coal in electricity production. (Henry hub prices – the US reference for natural gas spot prices—are at their lowest in four years). Effectively pricing GHG emissions would accelerate coal’s decline, as it is the most carbon-intensive fuel in the current energy mix. The CPP, for instance, is designed to offer states a ready opt-in for emissions trading, enabling market mechanisms to deliver lower emission levels in a cost effective way.

In the meantime, a wave of plant decommissioning has already begun in the country, mostly as a result of ageing assets and more local environmental regulations. “Clean air and clean water safeguards have already substantially reduced coal-based emissions. The coal industry is facing an increasing number of new environmental protections that are driving emission reductions on par with those of the CPP,” says John Coequyt, director of federal and international climate campaigns at the Sierra Club, an environmental advocacy group. One advantage of the CPP, he notes, is the opportunity it provides for states to coordinate their policies. “You’re no longer talking about one-off decisions based on an individual rule. It's an integrated approach,” he says.

As a result of these regulations, many of the country's coal companies currently have greater liabilities on their balance sheets than assets, after cleanup and decommissioning costs are considered. And this is leading some utilities to rethink their business model. Utilities like Sempra Energy, PG&E, or Xcel already make more than 20% of their retail sales from renewables, for instance.#_ftn3" name="_ftnref3" title="">[3] And in April, Berkshire Hathaway’s MidAmerican Energy announced its ambition to supply Ohio customers with 100% Renewables utility#_ftn4" name="_ftnref4" title="">[4]. As of 2014, nearly 70% of its power generating assets were fossil fuels-based.

Timing trade-offs

Fighting climate change, however, is not just about reducing emissions: Timing is of the essence. Many aspects of the energy system are not as clear-cut as the aforementioned options, and achieving a cost-efficient transition to a low-carbon energy system will require careful trade-offs. Some energy sources, like nuclear, represent tradeoffs between different sorts of pollution (greenhouse gases versus nuclear waste). According to projections by the Economist Intelligence Unit, net installed nuclear capacity is expected to increase by nearly 6GW over the next five years, which should maintain nuclear’s share in the power generation mix around its current level of 9% over the next five years.

Other solutions, such as the switch from coal to natural gas for power generation, can buy precious time by reducing emissions in the short-term. But while natural gas might be tempting as a transition fuel, focusing purely on it risks locking in gas power generation for the long-term as energy infrastructure investments made today will have useful lives of 30 to 50 years. Indeed, even if the US were to replace all of its coal generation with natural gas, the country’s per capita emissions would still substantially exceed those of its peers in the European Union.

The US will thus need to do much more than simply replace its coal power generation with natural gas if the country is serious about tackling climate change and meeting its Paris commitments. A rapid transition to clean energy is part of the answer.

Carolyn is a senior editor for The Economist Intelligence Unit's thought leadership division in the Americas. She manages research programs for foundations and corporations on topics ranging from urbanization and jobs to sustainability and youth economic prospects. She has over 20 years’ experience in journalism. Until 2013 Carolyn contributed articles to Fortune, Newsweek, the IHT and SciAm.com about urbanization, infrastructure, trade, technology and transportation, among other topics. She has also written materials for Ernst & Young, Columbia Business School and the United Nations. Earlier Carolyn covered the technology and healthcare beats for Barron’s Online and Dow Jones Newswires in Paris, respectively. She broke into journalism covering the 1992 Earth Summit and subsequently worked for the World Wildlife Fund in Switzerland. Ms. Whelan holds a B.A. in Communications from the University of Virginia and is a 2006 Columbia Business School Knight-Bagehot Fellow. She is Swiss and American, and speaks fluent French and Spanish.

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